This Digest was prepared for debate. It reflects
the legislation as introduced and does not canvass subsequent amendments.
This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent
official status of the Bill.

Contents

Passage History

A New Tax System (Personal
Income Tax Cuts) Bill 1998

Date Introduced: 2 December
1998

House: House of Representatives

Portfolio: Treasury

Commencement: After
the commencement of specified goods and services tax legislation(1)
p roposed to commence 1 July 2000

Purpose

The purpose of the A New Tax System (Personal Income Tax Cuts) Bill
1998 (the Bill) is to cut income tax rates and to increase the tax-free
threshold for certain taxpayers with dependent children under the Family
Tax Assistance initiative.

Background
- Tax Reform Package

On 13 August 1998 the Federal Government released its proposals for
reform of the Australian tax system(2) of which, a Goods and Services
Tax (GST) was the centrepiece.

On 2 December 1998 the Trea surer introduced a raft of 16 bills(3)
to the House of Representatives comprising the first part of the reform
package. Seven of the bills propose to replace the current Wholesale
Sales Tax and to enact a GST that will be levied at a rate of 10 per
cent with effect from 1 July 2000. Nine of the bills introduced non-GST
measures contained in the tax reform plan.

The tax reform plan proposes to:

â¢ introduce a GST which eliminates sales tax and
a range of nine other indirect taxes

â¢ change Commonwealth-State
f inancial relations by providing States and Territories with
an independent revenue base

â¢ move toward
an ‘entity’ taxation system which is directed toward the elimi nation
of tax advantages between different business structures, and

â¢ simplify the imputation system and introduce refunds for excess
franking credits.

The main Bill implementing the GST is the A New Tax System (Goods
and Services Tax) Bill 1998. The bills digest for that Bill will
contain a more detailed history of events leading up to the GST and,
naturally, a detailed account of how the proposed GST will operate.

Background
- Compensation Package

1.
Introduction

There is no doubt that the reforms propose d by the government
present sweeping and fundamental changes to the tax system in Australia.

The introduction of a GST necessarily raises questions
pertaining to the distributional impacts of such a tax. In particular,
consideration is given to any potential disadvantage that may be incurred
by sectors of the community due to the introduction of a value-added
tax.

The compensation package introduced by the government
purportedly avoids the situation where persons would be worse-off under
the new tax system. The reform package will, therefore, provide an unambiguous
increase in total economic welfare if, after implementation, a number
of individuals are better off and nobody is made worse off.(8)

The contentious issue, of course, is whether the package
succeeds in achieving its aims.

The key issue appears, therefore, to be the accuracy of the projected
distributional impacts of the tax reform package. The accuracy
of the estimates of the impact of change remains a legitimate concern
for those most vulnerable in the community.

2. Economic
restructuring

2.1 Equity

The two basic principles of tax equity are horizontal equity and vertical
equity.(9)

Horizontal equity means that persons in similar positions should be
treated equally and vertical equity means that people should
pay taxes in accordance with their ability to pay.(10)

These principles underpin much of the discussion relating
to the interaction of the taxation system and social welfare function.(11)

There is considerable disagreement throughout the
community in respect of their application. For example, there are widely
differing views about the application of horizontal equity and how much
less tax those people with children should pay. Similarly there are
extreme views relating to how much more tax higher income earners should
pay.

Ultimately economic policy is the responsibility of government, which
will make explicit value judgments about the desirability of making
various groups of people better or worse off, and will be accountable
through the political process for judgments it m akes.

2.2 Progressive/Regressive tax systems

Debate is also often focussed on the extent to which taxes should
be regressive or progressive.

Progressive tax is a tax, which takes an increasing proportion of
income as income rises and regressive tax is a t ax, which takes
a decreasing proportion of income as income rises.(12)

A progressive income tax system is most often associated
with wealth re-distribution from those with higher incomes to those
with lower incomes.

In Australia at the present time, the net effect of
income taxes, indirect taxes, cash transfer and non-cash benefits programs
is to redistribute income from the ‘better-off to the less well off’.(13)

2.3 Social security

The community demands a social welfare safety net and indeed a social
secur ity system with a substantial degree of integrity, fairness
and inherent stability.

It is incumbent upon governments to balance the competing
interests of generating revenue to support the social welfare system
in such a manner that creates certainty of delivery of functions, while
at the same time not overindulging in the execution of tax equity principles
to the detriment of providing incentives to work and generate self wealth.

Social security is a system of government financed
income transfers designed to effect a distribution of income considered
desirable. The main component of most social security systems is welfare
benefits, given to those in poverty.(14) This can be done in two ways:
(a) by identifying groups that are likely to be poor, and giving benefits
to them (eg. the unemployed, the elderly and the disabled) irrespective
of their actual income; or (b) by identifying, through means tests,
people who are poor. The second of these approaches is a less expensive
method of eradicating poverty, but leads to the problem of the poverty
trap.(15)

The poverty trap arises from the combination of losing entitlement
to income support payments and paying tax that ensures individuals or
families retain very little of any extra money they earn. ‘Apart from
the inefficiency of suppressing the incentive for people in the
poverty trap to work, concern exists over the debilitating human effects
of removing from people the power to alter their own living standards.’(16)

It appears that there is an increasing proport ion of the population
in Australia is caught in poverty traps. This suggests that the
interrelationship between the tax system and the social security system
is in need of remedial action.

The tax reform package proposes to introduce some
initiatives to remedy to a degree problems associated with the poverty
trap. A combination of measures are designed to increase social security
payments, increase income and assets test free areas, provide extra
assistance to families and deliver personal income tax cuts. This should
reduce both the rates at which income support and income supplement
payments are withdrawn and lessen the tax liability as persons receive
or earn extra income. The amendments will reduce effective marginal
tax rates by reducing both tax rates and income tax taper rates. This
should provide greater encouragement to those persons currently caught
in the poverty trap to seek to improve their living standards.

The Bill seeks to provide for significant personal
income tax cuts, which should help to address the problem of the poverty
trap.

3. Distributional
impact of the package

3.1 Economic modelling

Attempts to model the effects of taxation reform present interesting
challenges for economists and a conundrum for those attempting to rationalise
the outcomes of any distributional impact analysis.

The key question in estimation theory is to identify
which approach gives the most useful information about the relevant
issue. This first fundamental step can be as contentious as any of the
outcomes generated by the analysis. Economists often appear to be in
conflict about which model will give the best estimate of distributional
impacts in relation to any particular change.

In addition, any analysis generated in the area of taxation reform
is usually the subject of caveats that turn on the assumptions required
to be made and the problems associated with data shortcomings. It seems
that no one model is capable of providing an estimation that
is free from caveat nor capable of providing highly accurate analysis
across such a wide range of issues that concern taxation reform.

This is illustrated by the setting up of a new forum,
Forum for Modelling of Australian Taxation (ForMAT), which had its first
meeting on 10 December 1998. The stated purpose of the new forum is
to enhance comprehension and quantification of the effects of the changes
and to bring together research from many different styles of quantitative
modelling, noting that the proposed changes ‘will have ramifications
too wide for one approach or economic model to cover.’(17)

The complexity and level of uncertainty generated
by economic modelling unfortunately appears to lend itself to interpretation
of analysis capable of supporting various views on any given topic.

3.2 Government modelling

The estimation method used in the tax reform package is the common
price impact across households approach (population CPI).

The aggregate consumption patterns represented in the
official CPI [Consumer Price Index] are used to produce an estimate
of the impact of price changes on households. The official CPI weights
are based on HES [Household Expenditure Survey] expenditure shares,
but the HES expenditure shares are only one input into the calculation
of the CPI.

To the extent that, over time, households’ expenditure
patterns converge, the population CPI provides a very good estimate,
at a point in time, of the impact on any individual household. Conversely,
the shortcoming with this approach is that differences in consumption
patterns across different groups or different households over time is
not reflected. Given the considerable limitations outlined in
the next two sections [concerning different price impacts for different
household groups and different effects for different individuals] the
population CPI remains the best estimate of the impact on any individual
household.(18)

There has been conside rable debate as to the accuracy of the
distributional impacts espoused by the government in connection with
the tax reform package.

The following represents a sample of debate and the
divergent views as to the most appropriate economic model to use to
estimate the impacts of the change.

â¢ The government
maintains that the population CPI provides the best estimate of the
impact of the tax reform proposals on any individual household.

â¢ The Australian
Labor Party (ALP) appears to have variously supported the approach
of the HES model and in more recent times the Monash model which allegedly
are in conflict with the estimates of impacts relied upon by the government
in formulating its compensation package.

â¢ A
non-government group(19) is conducting a research project, which incorporates
reform-induced behavioural change into a general equilibrium model of
the economy. The models mentioned above apparently do not take into
account behavioural change. It is stated that in incorporating behavioural
change, tax reform options can be assessed and evaluated in terms of
their impacts on equity and efficiency in both the short and long run.

â¢ Another
estimation approach is the different price impacts for different household
groups model. It involves estimating different price effects for different
households. The Australian Bureau of Statistics (ABS) does not have
a set of CPI weights for groups within the population at this stage,
although preliminary work has been done in this area. It would seem,
however, that this approach, if the CPI weights were available, would
constitute an improvement on the population CPI model.(20)

An example of the complexity of economic modelling and the subsequent
variances in interpretation may be found in the discussion relating
to the ana lysis generated by the HES model.

Although Treasury had used the population CPI model it also conducted
analysis in accordance with the HES model and the estimates in relation
to that analysis were released in November 1998 with the following resultant
and divergent commentary.

â¢ The gover nment
has stated that the population CPI approach remains the best estimate
of distributional impacts, indicating a 1.9 per cent price increase.
Its interpretation of the HES estimates is that it showed ‘that the
effect on the cost of living across 11 different household groups at
five different income levels varied between 1.3 per cent and 2.5 per
cent, with an average of 1.8 per cent. On the basis of the HES, the
impact was less on average than Treasury had estimated.’(21)

â¢ The
ALP have interpreted the HES estimates in a different manner, suggesting
that ‘the Treasury data released today has confirmed the impacts estimated
by the Melbourne Institute, namely that many lower income household
groups are affected more by the GST than the average…. Instead of
facing a 1.9% price increase claimed by Mr Costello, these vulnerable
groups face impacts up to 30% higher than the Government has let on.’(22)

Such competing views of the same analysis serve to underscore the
difficulties involved in estimating impacts of change. It is
also a reminder that any fundamental error in the methodology used to
make such estimates could have far reaching effects on low income earners.

3.4 Senate Select Committee

On 25 November 1998, the Senate referred issues relating to the GST
and the new tax system to a Select Committee and three of its Reference
Committees.(23) The Select Committee will examine the economic theories,
assumptions, calculations, projections, estimates and modelling which
underpinned the Government’s proposals for taxation reform.

4. Compensation
package Bills

The Bills referred to as the Compensation Package are:

A New Tax System
(Compensation Measures Legislation Amendment) Bill 1998

A New Tax System
(Personal Income Tax Cuts) Bill 1998

A New Tax System (Aged Care Compensation Measures Legislation
Amendment) Bill 1998, and

A New Tax System
(Bonuses for Older Australians) Bill 1998.(24)

Background - Taxation

1. Income Tax
Assessment Acts 1936 and 1997

For many years the income tax law has been widely criticised
for being too difficult to read and understand. The complexity of the
law has increased the costs of taxpayer compliance and government administration.

From 1 July 1994 the Tax Law Improvement Project was established to
restructure, renumber and rewrite th e income tax law so that
it can be more easily understood. The project has taken longer than
expected and consequently the Tax Law Improvement Project team has chosen
to adopt a ‘progressive replacement’ approach to the rewrite. This
means that when an instalment of rewritten law comes into effect, the
rest of the existing law (minus those areas that have been rewritten)
continues to operate along side the new law.

The existing law is the Income Tax Assessment Act 1936 (ITAA 1936). The new law is
the Income Tax
Assessment Act 1997 (ITAA 1997).

The ITAA 1997 is organised
on a descending hierarchy numbering system of Chapter-Part-Division-Section.
Section numbers are cited with two components separated by a dash as
in ‘section 43-20’. The first component is the number of the division
and the second identifies the section in that division.

The ITAA 1997 contains
a provision, section 1-3, which is designed to preserve the relevance
of existing case law and ATO rulings.

The coexistence of ITAA
1936 and ITAA 1997 often means that amendments to the law necessarily
involve amendments to both Acts. That is the case with the Bill.

2.
Constitutional framework requires separate tax imposition Acts

The Commonwealth Parliament derives its powers from the Commonwealth of Australia
Constitution Act . Its power with respect to taxation is found
in section 51, Placitum (ii). Section 55 of the Constitution , also affects the Commonwealth’s power to tax
and in particular it states that ‘Laws imposing taxation shall deal
only with the imposition of taxation, and any provision therein dealing
with any other material shall be of no effect.’

Accordingly it is because of our constitutional framework that the
law with regard to tax is contained in separate Acts. The Income Tax Assessment
Act 1936 (ITAA36) and the Income Tax Assessment Act 1997 (ITAA97) deal with the subject
of tax and its assessment and collection while the Rating Acts(25) impose the actual tax.

Main
Provisions

Schedule 1 - Amendment to the Income Tax Rates Act 1986

1.
Introduction

Schedule 1 amends the Income Tax Rates Act 1986 which prescribes, in Part II, the
rates of income tax payable upon incomes other than incomes of companies,
prescribed unit trusts, superannuation funds and certain other trusts.

2. Cut in tax-free threshold
and personal income tax rates

The two main criteria for liability to Australian tax are residence
a nd source of income. The general scheme of the tax legislation
is such that, if a taxpayer is a resident, the taxpayer’s assessable
income includes all ordinary income and all statutory income from all
sources (whether in or out of Australia). If a taxpayer is a non-resident,
the taxpayer’s assessable income generally includes only ordinary
and statutory income from all sources in Australia. This general rule
is, of course, subject to various exemptions and exceptions.

The rates of tax on the taxable income of resident
and non-resident taxpayers are different and the tax-free threshold
is not available to non-resident taxpayers.

2.1 Resident taxpayers

Item 14 repeals the table in clause
1 of Part 1 of Schedule 7 and inserts a new table in substitution headed ‘Tax rates for resident
taxpayer’. This is set out below.

Tax rates
for resident taxpayer

Column 1

For the part of the ordinary
taxable income of the taxpayer that:

Column 2

The rate is:

exceeds $6,000 but does not exceed $20,000

17%

exceeds $20,000 b ut does not exceed $50,000

30%

exceeds $50,000 but does not exceed $75,000

40%

exceeds $75,000

47%

The new
Table in clause 1 of Part 1 of Schedule 7 increases the tax-free
threshold from $5,400 to $6,000. This means that the first $6,000 of
taxable income(26) derived by a resident individual will be tax free.

There is also a significant increase in the level of income at which
the top marginal rate of 47 per cent takes effect. When combined with
further adjustments to the level of income at which the sec ond
highest top marginal rate takes effect this should prevent average earners
from drifting into the top marginal rates of tax. The table below sets
out a comparison of the current and proposed rates of tax.

Current
scale

New scale

Taxable Income $

Tax rate (%)

Taxable Income $

Tax Rate (%)

0-5,400

0

0-6,000

0

5,401-20,700

20

6,001-20,000

17

20,701-38,000

34

20,001-50,000

30

38,001-50,000

43

50,001-75,000

40

50,001+

47

75,001+

47

2.2
Non-resident taxpayers

Item 15 repeals the table in clause
1 of Part II of Schedule 7 and inserts a new table in substitution,
headed ‘Tax rates for non-resident taxpayer’. This is set out below.

Tax rates
for non-resident taxpayer

Column 1

For the part of the ordinary
taxable income of the
taxpayer that:

Column 2

The rate is:

does not exceed $20,000

29%

exceeds $20,000 but does not exceed $50,000

30%

exceeds $50,000 but does not exceed $75,000

40%

exceeds $75,000

47%

The tax-free threshold is not available to non-residents. The lowest
marginal tax rate that c urrently applies and will continue to
apply under the proposed changes is 29 per cent, as opposed to the corresponding
rate of 17 per cent for residents.

The table below sets out a comparison of the current and proposed
rates of tax for non-residents.

Curr ent scale

New scale

Taxable Income $

Tax rate (%)

Taxable Income $

Tax Rate (%)

0-20,700

29

0-20,000

29

20,701-38,000

34

20,001-50,000

30

38,001-50,000

43

50,001-75,000

40

50,001+

47

75,001+

47

3.
Increase in Family Tax Assistance

The object of Divis ion 5 is set out in section 20A of the Income Tax Rates
Act 1986 , which states that the Division provides for family
tax assistance by way of an increased tax-free threshold for certain
taxpayers with dependent children.

Sections 20C and 20D provide for the increase in tax-free
threshold provided that the taxpayer’s taxable income is less than
the relevant income ceiling for the year of income. As mentioned below
in paragraph 4, Item 16 of the Bill increases the standard tax-free threshold
from $5,400 to $6,000 for the purposes of sections 20C and 20D.

3.1 Doubling the family assistance increase
in the tax-free threshold for Part A and Part B Family Tax Assistance

Essentially the standard tax-free threshold is increased where the
taxpayer is entitled to Family Tax Assistance.

There are two types of Famil y Tax Assistance. The first, known
as Part A benefit, applies where there is at least one dependent child
and the family income is less than $70,000 (increasing by $3,000 for
each dependent child after the first). Where this applies the standard
tax-free threshold for one member of a couple or for a sole parent is
currently increased by $1,000 for each dependent child.

The second type of assistance, known as Part B benefit,
provides an additional benefit directed at families with one primary
breadwinner and at least one dependent child under 5 years. Where it
applies, the standard tax-free threshold is currently further increased
by an amount of $2,500.

The amounts of $1,000 and $2,500 are to be doubled to $2,000
and $5,000 respectively under proposed amen dments to subsections
20C(2) and 20D(2), inserted by Items 5 and 10 .

The amendments do not take effect, of course, until
the commencement of the legislation, which is proposed to be 1 July
2000. Until then subsections 20C(2) and 20D(2) will continue to have
effect to provide the family tax assistance by way of increasing the
tax-free threshold for eligible taxpayers at the current rates.

Items 2 and 7 amend paragraphs 20C(1)(b) and 20D(1), which refer to the
1996/97 income year, to ensure that the increase in the tax-free threshold
for that income year is not affected by the proposed amendments.

3.2 Amendments to reflect the lower income
tax rates that will be introduced from 1 July 2000

Item 11 repeals the table in subsection
20E(2) and inserts a new table in substitution headed ‘Tax rates for resident
taxpayer’. The amended table contains lower rates of tax to reflect
the lower income tax rates that will be introduced from 1 July 2000.
Please refer to paragraph 2.1 above.

If the adjusted tax-free threshold of a taxpayer to
whom, apart from subsection 20E(2), section 20C or 20D would apply,
exceeds $20,000, sections 20C and 20D do not apply but section 20E(2)
applies to replace the new table in clause 1 of Part 1 of Schedule 7 by the new table appearing below.

This is essentially a special rule that applies in
those rare cases where the effect of the normal rules would be to push
the taxpayer’s tax-free threshold beyond $20,000, ie the new point
at which the proposed 17% marginal tax rate increases to a proposed
30%. In such a case, the taxpayer is not taxable on the first $20,000
of taxable income, and is taxed at 13% (instead of 30%) on the balance
of the taxable income up to the amount of the tax-free threshold which
would have applied if the normal rules applied. Thereafter standard
rates apply.

Tax rates
for resident taxpayer

Column 1

For the part of the ordinary
taxable income of the
taxpayer that:

Column 2

The rate is:

exceeds $20,000 but does not exceed the adjusted tax-free threshold

13%

excee ds the adjusted tax-free threshold but does not exceed
$50,000

30%

exceeds $50,000 but does not exceed $75,000

40%

exceeds $75,000

47%

The table below sets out a comparison of the current and proposed
rates of tax. ‘ATFT’ means adjusted tax-free thres hold.

Many of these amendments relate to definitions contained
in Division 5-Family tax assistance: increased tax-free threshold for
certain taxpayers with dependent children.

Item 17 also amends the provisions relating to family tax assistance.
Wherever occurring in subsection 20E(1) the figure ‘$20,700’ is
omitted and the figure ‘$20,000’ is substituted in its place. This
primarily affects the replacement rates that take effect where the adjusted
tax-free threshold exceeds the specified amount. The specified amount
has been lowered from $20,700 to $20,000 at which time the part of the
ordinary taxable income that exceeds $20,000 but does not exceed the
adjusted tax-free threshold will be subject to tax at the rate of 13
per cent. Please refer to paragraph 3.2 above for additional information
relating to the amendments proposed to subsection 20E(2).

Schedule 2 - Consequential
amendments of Other Acts

1. Income Tax
Assessment Act 1936

These subsections refer to exemption of eligible income
in relation to earnings from a foreign source and approved overseas
projects. Income that is exempt under sections 23AF and 23AG is taken
into account in calculating Australian tax payable on other income derived
by the taxpayer. Accordingly the definitions of ‘tax free threshold
increase’ which appear in the calculation process are amended to ensure
consistency in relation to the quantum of the tax-free threshold.

Similarly, Item 1 also amends paragraph 221YDA(1)(g) and subparagraph
221YDA(2)(a)(iv) by omitting $5,400 wherever occurring and substituting
$6,000. These paragraphs refer to variation of provisional tax by self-assessment
and will apply to the 2000-2001 year of income and later years.(27)

As previously noted, the tax reform plan included
measures to replace the existing taxation payment systems, including
provisional tax, by one quarterly tax payment system, PAYG, by 1 July
2000. Perhaps some uncertainty as to the actual timing of the introduction
of the proposed changes to replace provisional tax has caused the government
to make amendments to provisions that will be repealed.

2. Income Tax Assessment Act 1997

Section 388-55 concerns the entitlement to the Landcare and Water
Facilit y Offset. Essentially if a taxpayer can deduct capital
expenditure incurred on landcare operations or on facilities to conserve
or convey water, they may be able, depending on the amount of their
taxable income, to choose a tax offset, instead of a deduction, for
up to $5,000 of the expenditure incurred on each of those things. The
offset is available to taxpayers whose taxable income for the income
year currently would have been $20,700 or less. Item 2 amends paragraph 388-55(2)(a) to delete reference to the amount of $20,700 and substitute
the amount of $20,000. This is consistent with proposed amendments relating
to in the Income
Tax Rates Act 1986 as outlined in this Bill, which amend the
level of income at which the new lowest marginal rate of tax cuts out.

Section 388-60 considers the amount of the tax offset
for an income year and is currently calculated on the basis of 34 per
cent of expenditure incurred. The threshold and offset rate are based
on the current income tax rates scale and therefore have been amended
to maintain consistency with the proposed new rates scale. Accordingly, Item 3 amends paragraphs 388-60(1)(a) and (b) by substituting
‘30%’ for ‘34%’.

Schedule 3 - Application
- Timing

1.
Application of amendments to the 2000-2001 income year and later years

The amendments made by the Bill will generally apply to assessments
for the 2000-2001 income year and later years.

The exceptions are some technical amendments to Division 5 (concerning
family tax assistance) to omit the word ‘taxpayers’ a nd substitute
the word ‘taxpayer’s’.

In addition, Item 1(2) provides that the amendments to section 221YDA apply
for the purposes of working out amounts of provisional tax (including
instalments) payable for the 2000-2001 income year and later years.

Concluding Comments

1.
Naming of GST bills

From a practical perspective, the titles of all GST Bills appear to
be unnecessarily lengthy and indeed cumbersome. The words ‘A New Tax
System’ could be deleted from each title without affecting the relevance
of the title to the particular piece of legislation. Presumably
the title has been used to make it easier for the Parliament to identify
those Bills which form part of the GST package. The use of lengthy titles
may, however, cause some problems for practitioners who will be referring
to the legislation in later years.

2. Advantage to middle Australia

The proposed personal income tax cuts appear to be openly more beneficial
to middle Australia(28) than the low income earners. It would seem that
middle Australia is the group that has been most affected by
the bracket creep(29) in recent years and therefore to combat and reverse
this trend the median area of the income tax rates scale required more
significant attention.

It would be inaccurate to suggest that low income earners do not derive
benefit from the tax cuts and equally misleading to ignore other tax
reform package proposal measures that more directly affect low income
earners. Having said that, however, the intro duction of the GST
necessarily raises questions pertaining to the distributional impacts
of the tax. The accuracy of the estimates of the impact of the totality
of changes will affect low income earners to a more significant extent
than middle to high income earners. The key issue for the compensation
package appears, therefore, to be the accuracy of the projected distributional
impacts of the entire tax reform package. For additional information
in relation to other compensation measures please refer to the Bills
Digests for the Bills mentioned on pages 7 and 8 of this Digest.

Endnotes

1. A New Tax System
(Goods and Services Tax) Act 1998 ; A New Tax System
(Goods and Services Tax Administration) Act 1998 ; A New Tax System
(Goods and Services Tax Imposition - Excise) Act 1998 ; A New Tax System
(Goods and Services Tax Imposition - Customs) Act 1998 ; A New Tax System
(Goods and Services Tax - General) Act 1998 ; and A New Tax System
(Goods and Services Tax Administration) Act 1998 .

2. Treasurer, Tax Reform - not
a new tax - a new tax system ; Tax Reform Plan, 13 August 1998,
Commonwealth of Australia.

3. Seven GST Bills :
A New Tax System (Goods and Services Tax) Bill 1998; A New Tax System
(Goods and Services Tax Transition) Bill 1998; A New Tax System (Goods
and Services Tax Administration) Bill 1998; A New Tax System (Goods
and Services Tax Imposition-General) Bill 1998; A New Tax System (Goods
and Services Tax Imposition-Customs) Bill 1998; A New Tax System (Goods
and Services Tax-Excise) Bill 1998; A New Tax System (End of Sales
Tax) Bill 1998; and

Nine Non-GST
Bills : A New Tax System (Aged Care Compensation Measures Legislation
Amendment) Bill 1998; A New Tax System (Australian Business Number)
Bill 1998; A New Tax System (Australian Business Number Consequential
Amendments) Bill 1998; A New Tax System (Income Tax Laws Amendment)
Bill 1998; A New Tax System (Bonuses for Older Australians) Bill 1998;
A New Tax System (Compensation Measures Legislation Amendment) Bill
1998; A New Tax System (Fringe Benefits Reporting) Bill 1998; A New
Tax System (Medicare Levy Surcharge - Fringe Benefits) Bill 1998 and
A New Tax System ( Personal Income Tax Cuts) Bill 1998.

9. Harding
A, National Centre for Social and Economic Modelling, University of
Canberra, ANU
Public Policy Program Public Seminar Series on ‘Rethinking Economic
Structuring’ , ANU, 21 September 1998, p 1.

13. Harding
A, National Centre for Social and Economic Modelling, University of
Canberra, ANU
Public Policy Program Public Seminar Series on ‘Rethinking Economic
Structuring’ , ANU, 21 September 1998, p 5.

14. Poverty
may be defined as the situation facing those in society whose material
needs are least satisfied. Poverty exists not merely because incomes
are low, but also because the needs of certain low-income households
are high. Bannock, Baxter & Davis, The Penguin Dictionary of Economics , Penguin Reference, Fourth
Edition, p 319.

19. Melbourne Institute
of Applied Economic and Social Research, University of Melbourne, the
Brotherhood of St Laurence and the Committee for Economic Development
of Australia, Understanding Behavioural Responses to Tax and Transfer Changes: A
Survey of Low Income Households , Melbourne Institute Working
Paper Series, Working Paper No 15/98.

23. Select
Committee on a New Tax System; Community Affairs References Committee;
Employment, Workplace Relations, Small Business and Education References
Committee; and Environment, Communications, Information Technology and
the Arts References Committee.

24. The other three Bills are dealt with in separate Bills Digests.

25. CCH
1998 Australian Master Tax Guide, paragraph 1-150:

The Rating
Acts impose the actual tax on taxable income as determined under
ITAA 1936 or ITAA 1997. The rates are declared and imposed under a number
of different Acts. The most important Acts are:

- The Income
Tax Rates Act 1986 and the Income Tax Act 1986 which together declare and impose income
tax on all categories of taxpayers - individuals, trustees, companies,
superannuation funds, ADF’s and PSTs.
- The Medicare
Levy Act 1986 which imposes the Medicare levy on individuals
and sets out the amount of levy payable.

26. Taxable income
equals assessable income minus deductions. There is no definition of
‘income’ in the ITAA 1936 or ITAA 1997 and therefor e assessable
income consists of income according to ordinary concepts and other amounts
which are specifically included under provisions of the legislation,
including net capital gains. Deductions allowed are those characterised
as general or specific, 1998 Australian Master Tax Guide , CCH, p 15.

27. CCH
1998 Australian Master Tax Guide, p 1245:

Provisional tax is an anticipatory tax based on the assumption that
the taxable income of the current year will not be less than that of
the preceding year (as inc reased by the provisional tax uplift
factor).

Provision is made for taxpayers who anticipate that their taxable income
for the current year will be more or less than that of the preceding
year to apply for the variation and recalculation of their provisional
tax (section 221YDA). The recalculation is made by applying current
year rates and rebates to the estimated taxable income.

28. The definition
of ‘middle Australia’ is controversial. For a discussion on this
please refer to an article by Gittins R, We’re piggies in the middle , The Sydney Morning Herald, 26
August 1998, p 13.

29. Bracket
creep is the effect of inflation increasing an individual’s income
which causes the individual to move into a higher tax bracket.

Contact Officer

Lesley Lang

18 Ja nuary 1999

Bills Digest Service

Information and Research Services

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